This blog covers financial, political and other topics the author gets the urge to write about. It does not provide personal financial, legal or other advice. Consider consulting a personal professional adviser before making any decisions. Copyright (c) 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017 by Leonard W. Wang. All rights reserved.

Wednesday, September 14, 2016

Does the Internet Hamper Economic Growth?

The sharing economy--Uber, Airbnb, Zipcar, bike sharing and so on--makes more efficient use of resources. Cars that might sit around are instead used more often. Living space that might remain empty provides accommodation. People don't have to buy a bike any more. They can just rent the short term use of one.

But does all this sharing hinder economic growth? If people use cars, bikes, homes and other things more efficiently, fewer of these items need to be produced and sold. Manufacturers may see decreased demand. Jobs may be lost. Growth could slacken. The country's tax base might stagnate, just at a time when increased government funding is sought for everything from national defense and security to infrastructure repair and expansion to Social Security and Medicare.

Gig-based employment could have similar implications. People who work short term gigs tend to earn less than full-time employees, reducing their ability to contribute to the consumer demand that comprises 70% of America's economy. Employers have little or no incentive to improve the abilities and productivity of gig employees, so improvements in worker productivity could be hampered. Without productivity growth, we won't have long term gains in employee compensation or national wealth. Gig employees may be unable to save significantly for retirement, which would place more of the burden of their golden years on public funding. These increased tax burdens could further impair growth. As gig-based employment grows, so would these problems.

The Internet greatly enhances globalization. Customer support centers in Third World countries can inexpensively serve the needs of corporations in the industrialized world. All manner of services, from manufacturing to radiology to routine legal work, can be cheaply coordinated and/or delivered from distant, low wage places over the Internet. Workers in America who provided those services are out of luck.

The Internet provides the communications process that allows the sharing economy, gig-based employment, and globalization of services, to operate. But greater micro-economic efficiencies such as these may have negative macro-economic implications. One of the great mysteries of modern economics is why the economy is growing so slowly. Increased efficiency creates losers as well as winners. Those losses will have aggregate impact eventually, when they grow large enough.

The Internet is an astonishingly effective conveyor of information. But, as regards the sharing economy, gig-based employment, and globalization, owners of assets, holders of capital, and employers benefit more than employees--except employees willing to work for lower wages The Internet may have enhanced total global economic growth. But the distribution of that increased growth may well favor low wage countries, leaving industrialized nations with dimmer futures.

It's impossible to stop the march of technological advance. But the Internet is almost too effective in cutting costs and creating efficiencies. When artificial intelligence and robots have driven millions of people out of the labor force, leaving them penniless, economic stagnation may be more likely than prosperity. We had damn well better come up with a way to maintain social equilibrium in such a circumstance, or the political insurgencies of today will seem like gentle summer breezes.

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